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A Bank subject to the Basel Accord makes a loan of $100m to a firm with a risk weighting of 50%
A Bank subject to the Basel Accord makes a loan of $100m to a firm with a risk weighting of 50%. What is the basic on balance credit risk charge?
Expert Solution
The basic balance credit risk charge is $4 million.
According to Basel I, the charge on credit risk is 8%. Thus, the total credit risk charge in this case is:
- credit risk charge = 100 million * 50% * 8%
- credit risk charge = 4 million
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